Some Basic Facts And Issues: Water Prospecting and the Ownership and Control of Public Resources
The United Nations expects demand to outstrip supply by more than 30 percent come 2040. As the crisis worsens, private companies are searching the world to acquire ownership rights to vast stores of water in order to bottle and ship it elsewhere, manage and sell it for profit locally, or build infrastructure to move it via massive long-distance pipelines. There are those who argue that without the existence of private ownership rights in what was once almost universally a public resource the scarce resources will become even more scarce due to lack of sufficient price structure incentives that will limit wasteful use.
Critics of privatization and the global prospecting it has spawned argue that profit-seeking ventures are not the best steward of the resources and not likely to meet the needs of the world's neediest, poorest people. A short 2010 Newsweek story, "The New Oil: The Race to Buy up the World's Water" offers a basic primer for those with no prior familiarity with the issue. It covers both issues within the US and globally.
Critics of privatization and the global prospecting it has spawned argue that profit-seeking ventures are not the best steward of the resources and not likely to meet the needs of the world's neediest, poorest people. A short 2010 Newsweek story, "The New Oil: The Race to Buy up the World's Water" offers a basic primer for those with no prior familiarity with the issue. It covers both issues within the US and globally.
Privatization, Commodification, and Sovereign Control
click Sierra Club image to visit their website
Quite often, critics of water resource management and ownership schemes pushed both domestically in the developed world and promoted globally in developing nations object to a variety of closely related ideas endorsed by those who favor markets over government involvement in every aspect of water resource policy. For example, the Sierra Club's Corporate Accountability Committee argues for the need for communities to mobilize "to prevent corporate privatization of their water services and resources" and as part of their educational mission, it seeks to provide "a broad overview of the corporate-driven trend toward the privatization and commodification of water."
It is quite natural that critics would address privatization, commodification and local or domestic control issues as integral parts of a single public policy agenda. For in fact, proponents of privatization of all sorts of government activities do tend to see the issues as bound up together. Nonetheless, it is important to understand the extent to which the debate about privatization is really about three separate but overlapping concerns. The following definitions of the first two are taken from the Executive Summary of the Pacific Institute report, “The New Economy of Water.”
“Privatization in the water sector involves transferring some or all of the assets or operations of public water systems into private hands. There are numerous ways to privatize water, such as the transfer of the responsibility to operate a water delivery or treatment system, a more complete transfer of system ownership and operation responsibilities, or even the sale of publicly owned water rights to private companies. Alternatively, various combinations are possible."
“Commodification is the process of converting a good or service formerly subject to many non-market social rules into one that is primarily subject to market rules."
Water Sovereignty is a third issue, and the core of the worry revolves around the potential for various forms of ownership and sale arrangements to undermine the sovereignty of local communities or nation-states exercised over scarce and vital natural resources for the sake of the common good.
Privatization of water managements systems is a major global trend, long encouraged by various international development agencies such as the IMF and World Bank, on the theory that systems of public control of scarce resources are likely to be far less efficient than privately run entities, and that in addition, public utilities tend either to make water available for free or at below market cost and therefore fail to provide adequate economic disincentives against overconsumption and virtually guarantees long-term depletion of resources.
Water sector privatization need not involve transfer of ownership rights to a private entity, but such transfer is a common practice, and the confusion over terminology is itself a familiar topic around the world. Private ownership of the water itself makes long-term investment decisions more secure and it makes it easier for private managers to insulate themselves from competition by others. Private ownership is a further worry that many critics of private management schemes undertaken in the developing world find especially objectionable.
But ownership of water can in principle remain in the hands of local communities or in the hands of those persons and entities that had legal rights to access to sources of water under the laws of a country prior to privatization of public systems of treatment and distribution. For example, a private entity can be given a contract to manage local water purification and distribution systems, and they may achieve that end simply by drawing a portion of the water available from lakes, rivers, or groundwater sources such as deep wells, just as publicly owned utilities had done previously.
Among the worries about privatization under "non-ownership" management contracts are the usual doubts that some have about the inherent conflicts between private profit motives and the pursuit of the public good. The thought, in many cases it seems, is that water is too important to entrust to private entities that are difficult to hold accountable through regulatory mechanisms and democratic processes. Even if water rights are not surrendered to exclusive private ownership, the objection is to the abdication of responsibility for which government entities are the most appropriate stewards. Compare the debate over water privatization to that regarding privatization of prisons or policing. The worry in the case of prisons and policing is that private actors are doing work that is inherently a state's fiduciary responsibility and that outsourcing to private entities substitutes profit maximization aims for what should be the responsibility of the state to carry out first and foremost for the sake of the common good, and no other purpose.
Objections to commodification, on the other hand, often are more fundamental. If commodification in itself is the locus of moral objection, then one should object to any mechanism for the sale of water as a commodity, whether the sellers are private companies or government entities. Those who oppose commodification, say, on the grounds that water should be treated as a human right, have a complaint against public utilities, private management contractors, and even private citizens who opt to sell some of their own water in the marketplace. Literally construed, if one objects to water as a commodity, then one should object to its being a market good in the same way some might object in principle, for example, to the sale of human organs or sexual services. Is commodification, as some anti-commodification rhetoric suggests, inherently wrong?
What are the implications of supposing that water is a human right? Compare what you might think if you similarly hold that health care is a human right. Do you have sufficient reason to oppose a system of private health care delivery alongside some system of public guarantee? For the sake of argument, suppose that the public system is very good and very comprehensive. Do you have in-principle objections to the commodification of health care when whatever requirements of human rights are fully satisfied?
What about the proponents of market commodification? Do they have reasons to object to a combination of private and public delivery of water? As it turns out, they do have a problem with such a scheme, and it is rooted in the intellectual basis of increased commodification of water, as exemplified in the economic slogan "full-cost recovery." The idea is that unless water is largely - perhaps if not exclusively - treated as a market commodity, with market-based pricing that captures the full cost of extraction, treatment, and delivery, then water will be wasted.
The market argument might seem harsh, but quite often it is made in the following way. The claim is that the very persons hurt most in the long run from a failure to price a vital commodity adequately are those least economically able to secure water for themselves inasmuch as the larger, improvident users will not have incentive to restrain present consumption. In effect, the market argument pits the presumed interests of the more vulnerable future poor against the narrowly self-interests of the currently affluent.
Critics of large scale efforts to transform water systems in developing nations press worries against familiar water resource regimes that combine privatization and commodification in a particular way. The perceived ills of privatization that are associated with loss of democratic accountability in the delivery of a public good are coupled with worries that full-cost recovery pricing mechanisms will harm those who are currently poor. The worry is that water prices will rise (and often have risen) well beyond what the poor can pay once state subsidization of water is removed and purely market prices are left to determine access. This is a worry of special significance given the fact that investment in water systems infrastructure is often expensive, and in order to recapture the full cost of the investment the price has to go up considerably, and no political remedy would be available.
Consider again the argument for full-cost recovery. On reflection, do we really need to make sure that private households pay the full freight? Or do we need only make sure that the large users, such as agriculture and water-intensive industries pay the full cost? It depends on the primary sources of water use and the mechanisms available for monitoring. See the water scarcity page for some clues as to what the major consumers of water are around the world
Privatization of management - and often of resource ownership - then goes hand in hand with a form of commodification that is not necessarily objected to because it is something that in principle should not be for sale, but for the more focal reason that water access ought not be subject exclusively to market norms. Thus, while the rhetoric of some critics suggests that they really do object in principle to commodification - i.e., the very idea of treating water as a market good - others object to treating water as no different from any other commodity. They reject the idea that market forces alone should determine pricing.
Issues of ownership and the locus of sovereign control over vital resources such as water dovetail with the debates over privatization and commodification. Some argue for strictly communal ownership such that no one, not even those who own land contiguous to bodies of surface water, ought to have private rights that give them powers of unlimited, exclusive use and sale of water. Others who raise concerns about sovereign control are mainly focused on the threats posed by private owners - especially foreign owners - who might extract water and treat it as a commodity within international commerce. The claim is that nation-states or the people directly perhaps should exercise sovereign control over the permissible uses of water resources and the preservation of the reserves of water that lie within a nation or community.
The sovereign control objection is in one sense, against a form of commodification, but unlike the other two objections the animating concern is loss of local or domestic control over an asset that (foreign) owners have no incentive to reserve to meet current or long-term needs of local communities. This third objection then is against treating water as a global commodity that can be extracted, removed from the country, and traded in international markets. Global trade in water can take a number of forms. Water can literally be loaded on tankers and shipped away, or it can be lost from a community through its use in high water-content agricultural and food products such as vegetables, fruits, juices, or sodas that are shipped overseas. This becomes a problem under conditions in which depletion of accessible water reserves exceeds rates of replenishment.
It is quite natural that critics would address privatization, commodification and local or domestic control issues as integral parts of a single public policy agenda. For in fact, proponents of privatization of all sorts of government activities do tend to see the issues as bound up together. Nonetheless, it is important to understand the extent to which the debate about privatization is really about three separate but overlapping concerns. The following definitions of the first two are taken from the Executive Summary of the Pacific Institute report, “The New Economy of Water.”
“Privatization in the water sector involves transferring some or all of the assets or operations of public water systems into private hands. There are numerous ways to privatize water, such as the transfer of the responsibility to operate a water delivery or treatment system, a more complete transfer of system ownership and operation responsibilities, or even the sale of publicly owned water rights to private companies. Alternatively, various combinations are possible."
“Commodification is the process of converting a good or service formerly subject to many non-market social rules into one that is primarily subject to market rules."
Water Sovereignty is a third issue, and the core of the worry revolves around the potential for various forms of ownership and sale arrangements to undermine the sovereignty of local communities or nation-states exercised over scarce and vital natural resources for the sake of the common good.
Privatization of water managements systems is a major global trend, long encouraged by various international development agencies such as the IMF and World Bank, on the theory that systems of public control of scarce resources are likely to be far less efficient than privately run entities, and that in addition, public utilities tend either to make water available for free or at below market cost and therefore fail to provide adequate economic disincentives against overconsumption and virtually guarantees long-term depletion of resources.
Water sector privatization need not involve transfer of ownership rights to a private entity, but such transfer is a common practice, and the confusion over terminology is itself a familiar topic around the world. Private ownership of the water itself makes long-term investment decisions more secure and it makes it easier for private managers to insulate themselves from competition by others. Private ownership is a further worry that many critics of private management schemes undertaken in the developing world find especially objectionable.
But ownership of water can in principle remain in the hands of local communities or in the hands of those persons and entities that had legal rights to access to sources of water under the laws of a country prior to privatization of public systems of treatment and distribution. For example, a private entity can be given a contract to manage local water purification and distribution systems, and they may achieve that end simply by drawing a portion of the water available from lakes, rivers, or groundwater sources such as deep wells, just as publicly owned utilities had done previously.
Among the worries about privatization under "non-ownership" management contracts are the usual doubts that some have about the inherent conflicts between private profit motives and the pursuit of the public good. The thought, in many cases it seems, is that water is too important to entrust to private entities that are difficult to hold accountable through regulatory mechanisms and democratic processes. Even if water rights are not surrendered to exclusive private ownership, the objection is to the abdication of responsibility for which government entities are the most appropriate stewards. Compare the debate over water privatization to that regarding privatization of prisons or policing. The worry in the case of prisons and policing is that private actors are doing work that is inherently a state's fiduciary responsibility and that outsourcing to private entities substitutes profit maximization aims for what should be the responsibility of the state to carry out first and foremost for the sake of the common good, and no other purpose.
Objections to commodification, on the other hand, often are more fundamental. If commodification in itself is the locus of moral objection, then one should object to any mechanism for the sale of water as a commodity, whether the sellers are private companies or government entities. Those who oppose commodification, say, on the grounds that water should be treated as a human right, have a complaint against public utilities, private management contractors, and even private citizens who opt to sell some of their own water in the marketplace. Literally construed, if one objects to water as a commodity, then one should object to its being a market good in the same way some might object in principle, for example, to the sale of human organs or sexual services. Is commodification, as some anti-commodification rhetoric suggests, inherently wrong?
What are the implications of supposing that water is a human right? Compare what you might think if you similarly hold that health care is a human right. Do you have sufficient reason to oppose a system of private health care delivery alongside some system of public guarantee? For the sake of argument, suppose that the public system is very good and very comprehensive. Do you have in-principle objections to the commodification of health care when whatever requirements of human rights are fully satisfied?
What about the proponents of market commodification? Do they have reasons to object to a combination of private and public delivery of water? As it turns out, they do have a problem with such a scheme, and it is rooted in the intellectual basis of increased commodification of water, as exemplified in the economic slogan "full-cost recovery." The idea is that unless water is largely - perhaps if not exclusively - treated as a market commodity, with market-based pricing that captures the full cost of extraction, treatment, and delivery, then water will be wasted.
The market argument might seem harsh, but quite often it is made in the following way. The claim is that the very persons hurt most in the long run from a failure to price a vital commodity adequately are those least economically able to secure water for themselves inasmuch as the larger, improvident users will not have incentive to restrain present consumption. In effect, the market argument pits the presumed interests of the more vulnerable future poor against the narrowly self-interests of the currently affluent.
Critics of large scale efforts to transform water systems in developing nations press worries against familiar water resource regimes that combine privatization and commodification in a particular way. The perceived ills of privatization that are associated with loss of democratic accountability in the delivery of a public good are coupled with worries that full-cost recovery pricing mechanisms will harm those who are currently poor. The worry is that water prices will rise (and often have risen) well beyond what the poor can pay once state subsidization of water is removed and purely market prices are left to determine access. This is a worry of special significance given the fact that investment in water systems infrastructure is often expensive, and in order to recapture the full cost of the investment the price has to go up considerably, and no political remedy would be available.
Consider again the argument for full-cost recovery. On reflection, do we really need to make sure that private households pay the full freight? Or do we need only make sure that the large users, such as agriculture and water-intensive industries pay the full cost? It depends on the primary sources of water use and the mechanisms available for monitoring. See the water scarcity page for some clues as to what the major consumers of water are around the world
Privatization of management - and often of resource ownership - then goes hand in hand with a form of commodification that is not necessarily objected to because it is something that in principle should not be for sale, but for the more focal reason that water access ought not be subject exclusively to market norms. Thus, while the rhetoric of some critics suggests that they really do object in principle to commodification - i.e., the very idea of treating water as a market good - others object to treating water as no different from any other commodity. They reject the idea that market forces alone should determine pricing.
Issues of ownership and the locus of sovereign control over vital resources such as water dovetail with the debates over privatization and commodification. Some argue for strictly communal ownership such that no one, not even those who own land contiguous to bodies of surface water, ought to have private rights that give them powers of unlimited, exclusive use and sale of water. Others who raise concerns about sovereign control are mainly focused on the threats posed by private owners - especially foreign owners - who might extract water and treat it as a commodity within international commerce. The claim is that nation-states or the people directly perhaps should exercise sovereign control over the permissible uses of water resources and the preservation of the reserves of water that lie within a nation or community.
The sovereign control objection is in one sense, against a form of commodification, but unlike the other two objections the animating concern is loss of local or domestic control over an asset that (foreign) owners have no incentive to reserve to meet current or long-term needs of local communities. This third objection then is against treating water as a global commodity that can be extracted, removed from the country, and traded in international markets. Global trade in water can take a number of forms. Water can literally be loaded on tankers and shipped away, or it can be lost from a community through its use in high water-content agricultural and food products such as vegetables, fruits, juices, or sodas that are shipped overseas. This becomes a problem under conditions in which depletion of accessible water reserves exceeds rates of replenishment.
Water Rights: A Comparative Legal Perspective
click image for FAO study
If privatization of management of water systems is distinct from the more fundamental notion of "privatization" by which we mean the transfer of state owned resources in water to private owners, then we need to know more about the sort of water ownership and use rights regimes that are in place before, and very often, after the privatization of public water utilities.
Who owns the surface water in lakes, rivers and streams, or the ground water deep below the surface and recoverable with deep wells? What uses are permitted or prohibited legally? As one might guess, the answers to these questions vary among legal jurisdictions around the world and within federal systems such as the US.
Let's begin with the distinction between surface water rights and groundwater rights. A system of surface water rights define the entitlements of various persons to access and use of water in streams, lakes, and rivers, for example. Hence the name, surface water. Below the surface, deep in aquifers, is groundwater. The two systems are related, for example, insofar as lakes and streams feed the aquifers and contamination of groundwater ultimately contaminates various surface water sources when pumped from below and introduced into land-based basins. But the legal regimes covering each are usually quite different.
For most people, perhaps, when legal rights to use water are thought of, surface water rights come first to mind. These rights have traditionally been linked to land ownership rights. Owners of land with direct physical access to a stream, river or other natural water source acuire certain rights, consistent with some scheme of rights for other contiguous land users and downstream users. Not only issues of quantity arise in conflicts, but so too are issues of quality and flow rates. And so diversion, restriction, and disposal of wastes are central aspects of water rights. For much of the world, especially in rural areas, customary or local law remains the only basis for establishing expectations and resolving conflicts. Formal legal regimes are of two dominant types. As the 2006 FAO comparative law survey paper (click image for link to the FAO report) observes:
"The civil law tradition, which sometimes described as the Romano-Germanic family, is found in most European countries (including the former socialist countries of Eastern and Central Europe), nearly all countries in Latin America, large parts of Africa, Indonesia and Japan as well the countries of the Former Soviet Union. The common law tradition emerged from the law
of England. Countries in which the common law tradition applies include Australia, Canada, India, New Zealand, Pakistan, Singapore, and the United States, and the remaining African countries that are not in the civil law tradition as well as other Commonwealth countries and a number of countries in the Middle East."
For the most part, both civil law and common law traditions inherited the Roman law doctrine that bodies of water could be used and that the "usufruct" is the name for the right to use the benefit of the resource. Also borrowed from Roman law was the notion of riparian water rights to the "ordinary" use of the water flowing in the watercourse for reasonable purposes such as water for domestic purposes and for the watering of livestock. "Reasonable uses" meant that water could be used without regard to the effect which they might have had on downstream land owners. In addition, a riparian land owner does has some rights that are limited by effects on downstream owners.
In some Western states of the US, for example, traditional riparian rights were modified to grant a right of prior appropriation to whomever used the water first, more or less along the lines of mining claims of those first on the scene, whether or not the claimant has contiguous land ownership rights.
In the civil law tradition, navigable waters belong to the public and require government permit or authorization for use. But private waters, both above and below the surface of lands belong to the landowners and require no permit or permission for use. Obviously, differentiation between public and private waters can pose serious problems, and add to that the fact that most major bodies of freshwater in the world cross national boundaries poses yet further problems - well, just look at a map of the Middle East.
Groundwater in both civil and common law traditions was pretty much in agreement in the basics. Ownership of groundwater resides in the owners of the land. Until the technical capacity to pump from afar was developed, along with the improved understanding of how groundwater availability in one location affects availability in another, groundwater rules did not matter much. That was then, but now that we know how much of the freshwater we have available for human use is in groundwater, the calculus of interest starts to shift.
So where do things stand at the moment? Groundwater in the Western US, for example, where scarcity is better appreciated, is under public ownership, or alternatively, regulated under some complex public-private arrangement in which the state has control over sensitive basins and administers access on the basis of the allocation of permits determined by quantifying what counts as a socially important or “beneficial use” or a use not so great as to exceed a “safe yield.”
For the portion of groundwater not under strict state ownership and control, or in states and legal jurisdictions around the world that have not followed the model of the Western States, access to groundwater is still linked to the legal entitlements that private land owners have. For much of the history of the western United States, private groundwater laws of states conformed to the “Rule of Capture,” which gives landowners unlimited right to the water under their property. (Source: Bryner, Gary and Purcell, Elizabeth. "Groundwater Law Sourcebook of the Western United States." Natural Resources Law Center. University of Colorado at Boulder. Sept. 2003).
The kind of regime embodied in the law of capture - a regime formally recognized in most English speaking countries since the early days of English common law and in civil law countries - is therefore still the law in much of the world or, absent any clear legal rules, unlimited withdrawal is simply what is allowed to occur. Now, the existence of such a groundwater regime, or the lack of any other legal regulation of permissible levels of withdrawl, poses a problem for countries that are water-stressed, and it presents an economic opportunity for multinational corporations that wish to extract as much water for whatever commercial purposes as they can from whatever patches of real estate they are able to acquire. Similarly, there are major opportunities for largely unrestricted use of surface waters under legal rules that still conform largely to civil or common law regulations of bodies of water denominated as "private waters" - think of the water-rich nations of Latin America, for example.
For a comparative law assessment of the history and resource management implications of various regimes of legal rights to water, see the 2006 FAO study, Modern Water Rights: Theory and Practice.
Who owns the surface water in lakes, rivers and streams, or the ground water deep below the surface and recoverable with deep wells? What uses are permitted or prohibited legally? As one might guess, the answers to these questions vary among legal jurisdictions around the world and within federal systems such as the US.
Let's begin with the distinction between surface water rights and groundwater rights. A system of surface water rights define the entitlements of various persons to access and use of water in streams, lakes, and rivers, for example. Hence the name, surface water. Below the surface, deep in aquifers, is groundwater. The two systems are related, for example, insofar as lakes and streams feed the aquifers and contamination of groundwater ultimately contaminates various surface water sources when pumped from below and introduced into land-based basins. But the legal regimes covering each are usually quite different.
For most people, perhaps, when legal rights to use water are thought of, surface water rights come first to mind. These rights have traditionally been linked to land ownership rights. Owners of land with direct physical access to a stream, river or other natural water source acuire certain rights, consistent with some scheme of rights for other contiguous land users and downstream users. Not only issues of quantity arise in conflicts, but so too are issues of quality and flow rates. And so diversion, restriction, and disposal of wastes are central aspects of water rights. For much of the world, especially in rural areas, customary or local law remains the only basis for establishing expectations and resolving conflicts. Formal legal regimes are of two dominant types. As the 2006 FAO comparative law survey paper (click image for link to the FAO report) observes:
"The civil law tradition, which sometimes described as the Romano-Germanic family, is found in most European countries (including the former socialist countries of Eastern and Central Europe), nearly all countries in Latin America, large parts of Africa, Indonesia and Japan as well the countries of the Former Soviet Union. The common law tradition emerged from the law
of England. Countries in which the common law tradition applies include Australia, Canada, India, New Zealand, Pakistan, Singapore, and the United States, and the remaining African countries that are not in the civil law tradition as well as other Commonwealth countries and a number of countries in the Middle East."
For the most part, both civil law and common law traditions inherited the Roman law doctrine that bodies of water could be used and that the "usufruct" is the name for the right to use the benefit of the resource. Also borrowed from Roman law was the notion of riparian water rights to the "ordinary" use of the water flowing in the watercourse for reasonable purposes such as water for domestic purposes and for the watering of livestock. "Reasonable uses" meant that water could be used without regard to the effect which they might have had on downstream land owners. In addition, a riparian land owner does has some rights that are limited by effects on downstream owners.
In some Western states of the US, for example, traditional riparian rights were modified to grant a right of prior appropriation to whomever used the water first, more or less along the lines of mining claims of those first on the scene, whether or not the claimant has contiguous land ownership rights.
In the civil law tradition, navigable waters belong to the public and require government permit or authorization for use. But private waters, both above and below the surface of lands belong to the landowners and require no permit or permission for use. Obviously, differentiation between public and private waters can pose serious problems, and add to that the fact that most major bodies of freshwater in the world cross national boundaries poses yet further problems - well, just look at a map of the Middle East.
Groundwater in both civil and common law traditions was pretty much in agreement in the basics. Ownership of groundwater resides in the owners of the land. Until the technical capacity to pump from afar was developed, along with the improved understanding of how groundwater availability in one location affects availability in another, groundwater rules did not matter much. That was then, but now that we know how much of the freshwater we have available for human use is in groundwater, the calculus of interest starts to shift.
So where do things stand at the moment? Groundwater in the Western US, for example, where scarcity is better appreciated, is under public ownership, or alternatively, regulated under some complex public-private arrangement in which the state has control over sensitive basins and administers access on the basis of the allocation of permits determined by quantifying what counts as a socially important or “beneficial use” or a use not so great as to exceed a “safe yield.”
For the portion of groundwater not under strict state ownership and control, or in states and legal jurisdictions around the world that have not followed the model of the Western States, access to groundwater is still linked to the legal entitlements that private land owners have. For much of the history of the western United States, private groundwater laws of states conformed to the “Rule of Capture,” which gives landowners unlimited right to the water under their property. (Source: Bryner, Gary and Purcell, Elizabeth. "Groundwater Law Sourcebook of the Western United States." Natural Resources Law Center. University of Colorado at Boulder. Sept. 2003).
The kind of regime embodied in the law of capture - a regime formally recognized in most English speaking countries since the early days of English common law and in civil law countries - is therefore still the law in much of the world or, absent any clear legal rules, unlimited withdrawal is simply what is allowed to occur. Now, the existence of such a groundwater regime, or the lack of any other legal regulation of permissible levels of withdrawl, poses a problem for countries that are water-stressed, and it presents an economic opportunity for multinational corporations that wish to extract as much water for whatever commercial purposes as they can from whatever patches of real estate they are able to acquire. Similarly, there are major opportunities for largely unrestricted use of surface waters under legal rules that still conform largely to civil or common law regulations of bodies of water denominated as "private waters" - think of the water-rich nations of Latin America, for example.
For a comparative law assessment of the history and resource management implications of various regimes of legal rights to water, see the 2006 FAO study, Modern Water Rights: Theory and Practice.
A Critical Assessment of Privatization of Municipal Water Systems: Case Studies from 7 Countries
A 2003 report by Public Citizen uses case studies from seven regions of the world to argue against privatization of municipal water systems. In Water Privatization Fiascos: Broken Promises and Social Turmoil the authors examine the consequences of privatization in Atlanta, GA, the UK, Buenos Aires, Manila, Cochabamba, Indonesia, and South Africa.
The general conclusion exemplified in their assessment of the 10 year results from Argentina's 1993 privatization is as follows:
“During the first eight years of the contract, weak regulatory practices and contract renegotiations that eliminated corporate risk enabled the Suez subsidiary, Aguas Argentinas S.A., to earn a 19% profit rate on its average net worth….According to Fernando de la Rua….(speaking in March 1999 when he was Mayor of Buenos Aires): “Water rates, which Aguas Argentinas said would be reduced by 27% have actually risen 20%. These prices have increases, and the cost of service extension, have been borne by the urban poor. Nonpayment for water and sanitation are as high as 30 percent, and service cutoffs are common with women and children bearing the brunt with health and safety consequences.”
The general conclusion exemplified in their assessment of the 10 year results from Argentina's 1993 privatization is as follows:
“During the first eight years of the contract, weak regulatory practices and contract renegotiations that eliminated corporate risk enabled the Suez subsidiary, Aguas Argentinas S.A., to earn a 19% profit rate on its average net worth….According to Fernando de la Rua….(speaking in March 1999 when he was Mayor of Buenos Aires): “Water rates, which Aguas Argentinas said would be reduced by 27% have actually risen 20%. These prices have increases, and the cost of service extension, have been borne by the urban poor. Nonpayment for water and sanitation are as high as 30 percent, and service cutoffs are common with women and children bearing the brunt with health and safety consequences.”
More Case Studies Reaching the Opposite Conclusions About the Consequences of Privatization
Fredrik Segerfeldt of the Cato Institute also examines a number of case studies that overlap with the case studies used by the Public Citizen report, but with different conclusions. He argues that “the market has saved many lives in Chile and Argentina, in Cambodia and the Philippines, in Guinea and Gabon.”
He notes that there have many problems with privatization efforts but that they do not undermine the idea of privatization as a way to make resource consumption less wasteful and clean safe water more widely available to people who currently lack access. "Proper supervision has been missing. Regulatory bodies charged with enforcing contracts have been non-existent, incompetent or too weak. Contracts have been badly designed and bidding processes sloppy. But these mistakes do not make strong arguments against privatizations as such, but against bad privatizations."
Segerfeldt, Fredrik, 2005, Water for Sale: How Business and the market can resolve the World’s Water Crisis. Cato Institute. Washington, D.C.
For a very short summary, see his op-ed reproduced online see Segerfeldt, Fredrik. 2005a. “Private Water Saves Lives.” Financial Times, August 25, 2005.
He notes that there have many problems with privatization efforts but that they do not undermine the idea of privatization as a way to make resource consumption less wasteful and clean safe water more widely available to people who currently lack access. "Proper supervision has been missing. Regulatory bodies charged with enforcing contracts have been non-existent, incompetent or too weak. Contracts have been badly designed and bidding processes sloppy. But these mistakes do not make strong arguments against privatizations as such, but against bad privatizations."
Segerfeldt, Fredrik, 2005, Water for Sale: How Business and the market can resolve the World’s Water Crisis. Cato Institute. Washington, D.C.
For a very short summary, see his op-ed reproduced online see Segerfeldt, Fredrik. 2005a. “Private Water Saves Lives.” Financial Times, August 25, 2005.
Public Health Assessments of Privatization in Buenos Aires and in Other Latin American Case Studies
click image for larger view
Galiani, Gertler and Schargrodsky examine the privatization results in Buenos Aires and conclude very differently from the Public Citizen Study with regard to health impact:
“In the 1990s Argentina embarked on one of the largest privatization campaigns in the world including the privatization of local water companies covering approximately 30 percent of the country’s municipalities. Using the variation in ownership of water provision across time and space generated by the privatization process, we find that child mortality fell by 8 percent in the areas that privatized their water services; and that the effect was largest (26 percent) in the poorest areas. We check the robustness of these estimates using cause specific mortality. While privatization is associated with significant reductions in deaths from infectious and parasitic diseases, it is uncorrelated with deaths from causes unrelated to water conditions.”
Galiani, Sebastian, Paul Gertler and Ernest Schargrodsky. 2002. “Water for Life: The Impact of the Privatization of Water Services on Child Mortality.”
"Water privatization and public health in Latin America," a survey of other Latin American water privatization programs concludes that there is "no compelling case for privatizing existing public water utilities based on public health grounds. From the perspective of equity and justice, water privatization may encourage a minimalist conception of social responsibility for public health that may hinder the development of public health capacities in the long run." See chart at left for their summary of other studies they examined.
“In the 1990s Argentina embarked on one of the largest privatization campaigns in the world including the privatization of local water companies covering approximately 30 percent of the country’s municipalities. Using the variation in ownership of water provision across time and space generated by the privatization process, we find that child mortality fell by 8 percent in the areas that privatized their water services; and that the effect was largest (26 percent) in the poorest areas. We check the robustness of these estimates using cause specific mortality. While privatization is associated with significant reductions in deaths from infectious and parasitic diseases, it is uncorrelated with deaths from causes unrelated to water conditions.”
Galiani, Sebastian, Paul Gertler and Ernest Schargrodsky. 2002. “Water for Life: The Impact of the Privatization of Water Services on Child Mortality.”
"Water privatization and public health in Latin America," a survey of other Latin American water privatization programs concludes that there is "no compelling case for privatizing existing public water utilities based on public health grounds. From the perspective of equity and justice, water privatization may encourage a minimalist conception of social responsibility for public health that may hinder the development of public health capacities in the long run." See chart at left for their summary of other studies they examined.
The Role of the World Bank in the Efforts toward Privatization in Buenos Aires
For a discussion of the role of the World Bank in the push for privatization in Argentina and a discussion of their somewhat moderated view of privatization since then, see this 2007 International Environmental Law Research Centre (IELRC) paper by Andrés Olleta,The World Bank's Influence on Water Privatisation in Argentina.
The Historical Role of the IMF in Water Privatization
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The World Bank and IMF have used their lending leverage to promote the adoption of policies that approximate the ideal of “full cost recovery” and eliminate water subsidies as much as possible. But they are also big promotes In 2000, out of 40 IMF loans distributed through the International Finance Corporation, 12 had requirements of partial or full privatization of water supplies. The graphic is the World Bank's accounting of how much the IMF has required privatization as a condition of water loans during the period from 1990 through 2002. More recent data would provide an informative portrait of whether and how these institutions have changed in their views of privatization schemes they once valued so highly.
Is Privatization vs. Public Control the Right Question?
Pacific Institute’s report Beyond Privatization: Restructuring Water Systems to Improve Performance finds "that public versus private is not the bright line that separates success from failure. Researchers Gary Wolff and Eric Hallstein argue that the focus should be on performance, and they claim that performance "depends on effective staffing, consistent public support for sufficient funding, better asset management systems, performance measurements and rewards, and more stakeholder involvement and transparency."
Proposed Principles for Just Water Resource Management
Another Pacific Institute report, “The New Economy of Water” sets forth principles for water policy that call for: "protecting public ownership of water rights, including marginalized communities in decision-making, taking into account the impacts on downstream communities and the environment, and to ensuring that water quality is protected."
For example, the report weighs in on the issue of sovereign control and the moral (and legal) limits of international water trade. "There is considerable debate among legal experts as towhether WTO member governments can control, limit, or regulate bulk water exports, and there are few legal precedents. We believe a strong argument can be made to support banning bulk exports of water under GATT Article
XX(g) where freshwater water resources are “nonrenewable” or exhaustible through overuse or abuse assuming domestic production or consumption is also limited to prevent non-renewable uses. In some circumstances, we
also believe that GATT would support a ban on bulk exports of water when such exports threaten ecosystem or human health."
(For more on the controversy over the potential impact of of WTO and GATS rules on water, see more detailed discussion and links below.)
The issue of privatization is treated more contextually, noting the considerable degree of variation in design and local consequences of different water management schemes that travel under the banner of "privatization." They attempt to inventory the various possible costs and benefits of privatization that ought to be taken into account for reasons of fairness, and they preface that inventory with some detailed discussion of the differences. For example, they note that "the privatization of water encompasses an enormous variety of possible water-management arrangements. Privatization can be partial, leading to so-called public/private partnerships, or complete, leading to the total elimination of government responsibility for water systems." Moreover, control of systems may or may not be accompanied by changes in ownership in sources of freshwater or groundwater. (For more on that distinction, see the pages on water scarcity.
For example, the report weighs in on the issue of sovereign control and the moral (and legal) limits of international water trade. "There is considerable debate among legal experts as towhether WTO member governments can control, limit, or regulate bulk water exports, and there are few legal precedents. We believe a strong argument can be made to support banning bulk exports of water under GATT Article
XX(g) where freshwater water resources are “nonrenewable” or exhaustible through overuse or abuse assuming domestic production or consumption is also limited to prevent non-renewable uses. In some circumstances, we
also believe that GATT would support a ban on bulk exports of water when such exports threaten ecosystem or human health."
(For more on the controversy over the potential impact of of WTO and GATS rules on water, see more detailed discussion and links below.)
The issue of privatization is treated more contextually, noting the considerable degree of variation in design and local consequences of different water management schemes that travel under the banner of "privatization." They attempt to inventory the various possible costs and benefits of privatization that ought to be taken into account for reasons of fairness, and they preface that inventory with some detailed discussion of the differences. For example, they note that "the privatization of water encompasses an enormous variety of possible water-management arrangements. Privatization can be partial, leading to so-called public/private partnerships, or complete, leading to the total elimination of government responsibility for water systems." Moreover, control of systems may or may not be accompanied by changes in ownership in sources of freshwater or groundwater. (For more on that distinction, see the pages on water scarcity.
The Role of Private Equity Firms in Public Water System Privatization
Food and Water Watch released a report in August 2012, entitled, Private Equity, Public Inequity: The Public Cost of Private Equity Takeovers of U.S. Water Infrastructure.
Private equity takeovers of public water and sewer systems tend to be highly leveraged and risky. Among the key findings in support of this claim are the following:
Private equity takeovers of public water and sewer systems tend to be highly leveraged and risky. Among the key findings in support of this claim are the following:
- "Major financial firms are promoting large, complex and risky privatization deals, which essentially act as high- interest credit cards to finance budget shortfalls and infrastructure projects. Cash-strapped governments lack the bargaining power and know-how to properly negotiate these deals.
- Private equity players have targeted annual returns of at least 12–15 percent and usually flip assets within a decade."
GATS, WTO, and Water Privatization and Trade-Restrictive Regulations
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The General Agreement on Trade and Services (GATS) contains key provisions that allow governments to privatize all goods and services, including access to water. The Dublin Conference in 1992 recognized that water was a decreasing resource and there was need for regulation of some sort, to ensure that everyone could retain access to water. The GATS took this one step further and allowed for privatization of water on the assumption that it would create lower prices for consumers, if coupled with appropriate government regulations. GATS permits regulation of any kind of water and water use, from consumption to transportation to agriculture.
The flexibility of such rules, though, has led to concerns that governments will attempt to profit from privatization. The World Tarde Organization (WTO) has tried to allay such fears by pointing out that no country is required to privatize their water and that governments can and will maintain regulatory control over water even if private and foreign companies are in charge of distribution. There are no formal international agreements to ensure fair access to and distribution of water, though. As the disparity between developed and developing countries grows, there has been a push to restructure the WTO to more adequately address global economic needs.
For a long, detailed list of criticisms (with some useful documentation), see the World Trade Organization's webpage list of unflattering trade liberalization statistics.
Here is a representative statement of some criticisms of the WTO's impact on local water rights. And here is the WTO's response to critics who argue that the WTO works to take away water rights and access in developing nations.
The Center for International Environmental Law (CIEL) publication Environment and Trade: A WTO Guide to Jursiprudence explores in great depth many of the issues pertaining to the interaction between GATS provisions and domestic environmental regulations generally. Additionally, the following discussion paper prepared for the World Wildlife Federation and the Center for International Environmental Law (CIEL) highlights 12 areas where potential conflicts between GATS requirements and domestic policies to protect and conserve water, wetlands and ecosystems are emerging.
The flexibility of such rules, though, has led to concerns that governments will attempt to profit from privatization. The World Tarde Organization (WTO) has tried to allay such fears by pointing out that no country is required to privatize their water and that governments can and will maintain regulatory control over water even if private and foreign companies are in charge of distribution. There are no formal international agreements to ensure fair access to and distribution of water, though. As the disparity between developed and developing countries grows, there has been a push to restructure the WTO to more adequately address global economic needs.
For a long, detailed list of criticisms (with some useful documentation), see the World Trade Organization's webpage list of unflattering trade liberalization statistics.
Here is a representative statement of some criticisms of the WTO's impact on local water rights. And here is the WTO's response to critics who argue that the WTO works to take away water rights and access in developing nations.
The Center for International Environmental Law (CIEL) publication Environment and Trade: A WTO Guide to Jursiprudence explores in great depth many of the issues pertaining to the interaction between GATS provisions and domestic environmental regulations generally. Additionally, the following discussion paper prepared for the World Wildlife Federation and the Center for International Environmental Law (CIEL) highlights 12 areas where potential conflicts between GATS requirements and domestic policies to protect and conserve water, wetlands and ecosystems are emerging.
The Role of the World Bank in Global Water Policy
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The World Bank has long been the target of criticism, not only for its complicity with IMF cross-conditionality provisions in support of SAPs and for its historically single-minded obsession with GDP as the primary metric for evaluation of the success of development strategies, but also for its focus on large-scale projects such as dams and related kinds of public works projects. The criticisms are overlapping. The choice of projects such as large dams is subject to criticism because of its environmental destructiveness. The report of the World Commission on Dams, Dams and Development: A New Framework for Decision-Making is illustrative.
Equally important is the criticism that the World Bank has, for whatever reasons, steered many of the large, lucrative development contracts to a small number of well-connected multinational corporations. While defenders will argue that technical capacity is a driving consideration and that the relevant expertise is concentrated in the hands of a very few firms, the overarching point is that the longer term consequences of concentrating economic power and decisional authority in the hands of private entities for construction and management of something as vital as a nation's water supply is short-sighted. Moreover, the worry is that putting such momentum behind such large-scale investments drives out small-scale, diffusely controlled forms of local innovation for the generation of electricity and the treatment and distribution of clean water. Worse yet, some critics fear loss of effective control over the fate of small nations when outside corporations who are chosen to own, lease, or manage such resources exert outside influence on further political and economic decisions within lesser developed nations.
Equally important is the criticism that the World Bank has, for whatever reasons, steered many of the large, lucrative development contracts to a small number of well-connected multinational corporations. While defenders will argue that technical capacity is a driving consideration and that the relevant expertise is concentrated in the hands of a very few firms, the overarching point is that the longer term consequences of concentrating economic power and decisional authority in the hands of private entities for construction and management of something as vital as a nation's water supply is short-sighted. Moreover, the worry is that putting such momentum behind such large-scale investments drives out small-scale, diffusely controlled forms of local innovation for the generation of electricity and the treatment and distribution of clean water. Worse yet, some critics fear loss of effective control over the fate of small nations when outside corporations who are chosen to own, lease, or manage such resources exert outside influence on further political and economic decisions within lesser developed nations.
Moral Frameworks That Can Shed Light on When or Whether Water Should be a Market Good
One useful way of thinking about markets in general and the issue of market allocation of water for everyday personal uses within societies that are either poor, or under conditions in which privatization of local water effectively removes a vital resource from community control or threatens its secure access for local needs, is articulated in Debra Satz's book, Why Some Things Should Not Be For Sale: The Moral Limits of Markets. Oxford: Oxford University Press, 2010. In particular, see chapter 4.
Debra Satz outlines four basic parameters useful in identifying whether a particular market is noxious. A noxious market is defined as one which has “problems relating to the standing of the parties before, during, and after the process of exhange.”(p. 93). Often a judgment that some market is noxious, in the sense that it ought to be prohibited or curtailed sharply, is a function of a combination of four relevant factors.
First, Satz sees noxious markets as producing extremely harmful outcomes for some individuals. However, harmful outcomes on their own are not sufficient for removing a good from market-based distribution. Harmful outcomes occur in many if not all markets. “We think that the ups and downs of prices come with the territory. But some market outcomes are so negative, so extremely harmful that they almost always evoke a strong reaction.”(p. 94). Looking toward these more revolting outcomes, we can see transactions where one of the parties involved may be left destitute. An example Satz raises is where a grain market leaves some people starving because they cannot afford the grain at the price at which it is set. (p. 94). in such a case, what is problematic is that persons are left living below what one would consider a minimally decent life.
Second, markets can be noxious because of extremely harmful outcomes to the society as a whole. “The operation of these markets can undermine the social framework needed for people to interact as equals, as individuals with equal standing.” (p. 95). Markets that tend to displace democratic practices, say by effective sale of public offices through the influence of vast sums of money in elections is one example. Markets that eliminate democratic control over vital community assets and resources are another example.
Third, a noxious market can be one characterized by very weak or highly asymmetric knowledge and agency on the part of the participants. As Satz explains, “Agency failures an occur because some of the direct participants lack important knowledge or because the market has serious indirect effects on people who are not involved in the market transaction.”(p. 97). Markets that deal with long time horizons are good examples of the problem. Many of the choices today that affect our environment will not result in consequences for this current generation, and we have limited knowledge whether privatization of some resource will conserve a resource most effectively, and thus be in their best interest, or deprive them of future control over resources that might benefit foreign investors and leave behind greater deprivation and environmental damage from the construction of water treatment and storage infrastructure and watershed management techniques that result in rapid watert table depletion in envrironmentally sensitive areas.
Fourth, the final parameter of a noxious market is that underlying some markets are extreme vulnerabilities of sone of the parties involved. When entering the market, the parties should not have widely different resources or widely different capacities to understand the terms of the transaction. As Satz says, “In such circumstances the weaker party is at risk of being exploited.”(p. 97). This can easily be seen in any situation where a person is desperate to sell an item because of some need for quick money. If someone is desperate enough, they are likely to agree to any terms, no matter how unfair they may be. Or if external political pressure , for example, from international lending agencies, compromises the ability of political decision-makers to act in the best interests of the citizens, then water market regimes may be noxious markets. Entering the market with an extreme vulnerability of either sort is likely to result in unfair outcomes. Furthermore, some markets can exacerbate these underlying vulnerabilities. Satz details a famine in Bangladesh, where the price of food rose rapidly and became too expensive for the poor people to purchase. However, the rich were completely insulated from this shock, as they received rice as payment from tenants, so not only did they have their own stockpiles, but a surplus they could maintain. (p. 98). Many have claimed that water markets managed or owned by large corporate interests from outside the country have had similar effects.
Debra Satz outlines four basic parameters useful in identifying whether a particular market is noxious. A noxious market is defined as one which has “problems relating to the standing of the parties before, during, and after the process of exhange.”(p. 93). Often a judgment that some market is noxious, in the sense that it ought to be prohibited or curtailed sharply, is a function of a combination of four relevant factors.
First, Satz sees noxious markets as producing extremely harmful outcomes for some individuals. However, harmful outcomes on their own are not sufficient for removing a good from market-based distribution. Harmful outcomes occur in many if not all markets. “We think that the ups and downs of prices come with the territory. But some market outcomes are so negative, so extremely harmful that they almost always evoke a strong reaction.”(p. 94). Looking toward these more revolting outcomes, we can see transactions where one of the parties involved may be left destitute. An example Satz raises is where a grain market leaves some people starving because they cannot afford the grain at the price at which it is set. (p. 94). in such a case, what is problematic is that persons are left living below what one would consider a minimally decent life.
Second, markets can be noxious because of extremely harmful outcomes to the society as a whole. “The operation of these markets can undermine the social framework needed for people to interact as equals, as individuals with equal standing.” (p. 95). Markets that tend to displace democratic practices, say by effective sale of public offices through the influence of vast sums of money in elections is one example. Markets that eliminate democratic control over vital community assets and resources are another example.
Third, a noxious market can be one characterized by very weak or highly asymmetric knowledge and agency on the part of the participants. As Satz explains, “Agency failures an occur because some of the direct participants lack important knowledge or because the market has serious indirect effects on people who are not involved in the market transaction.”(p. 97). Markets that deal with long time horizons are good examples of the problem. Many of the choices today that affect our environment will not result in consequences for this current generation, and we have limited knowledge whether privatization of some resource will conserve a resource most effectively, and thus be in their best interest, or deprive them of future control over resources that might benefit foreign investors and leave behind greater deprivation and environmental damage from the construction of water treatment and storage infrastructure and watershed management techniques that result in rapid watert table depletion in envrironmentally sensitive areas.
Fourth, the final parameter of a noxious market is that underlying some markets are extreme vulnerabilities of sone of the parties involved. When entering the market, the parties should not have widely different resources or widely different capacities to understand the terms of the transaction. As Satz says, “In such circumstances the weaker party is at risk of being exploited.”(p. 97). This can easily be seen in any situation where a person is desperate to sell an item because of some need for quick money. If someone is desperate enough, they are likely to agree to any terms, no matter how unfair they may be. Or if external political pressure , for example, from international lending agencies, compromises the ability of political decision-makers to act in the best interests of the citizens, then water market regimes may be noxious markets. Entering the market with an extreme vulnerability of either sort is likely to result in unfair outcomes. Furthermore, some markets can exacerbate these underlying vulnerabilities. Satz details a famine in Bangladesh, where the price of food rose rapidly and became too expensive for the poor people to purchase. However, the rich were completely insulated from this shock, as they received rice as payment from tenants, so not only did they have their own stockpiles, but a surplus they could maintain. (p. 98). Many have claimed that water markets managed or owned by large corporate interests from outside the country have had similar effects.